By Robert Campbell
NEW YORK Aug 1 If Canadian oil producers had
their way, the last place they would pumping their Alberta crude
would be to Canada's East Coast. But TransCanada Corp's
Energy East pipeline project is emerging as the path of least
resistance for booming oil sands output.
If only local opposition was not a factor, Canada's No.2
pipeline operator must be lamenting. From a marketing
standpoint, the logical place to ship Canada's growing oil
surplus is the West Coast. It is closer to Alberta, so shipping
costs would be less, and the oil would be going to high-value
Failing that, shipping crude through the United States to
the Gulf Coast would be the next best option. The big refineries
in Texas and Louisiana are able to handle the heaviest grades
although marketing power is diminished by the abundance of U.S.
domestic crude output.
The East Coast, on the other hand, is a dying market.
Shrinking U.S. light crude imports are cutting into the premium
value of Atlantic basin crudes. Refinery closures in Europe and
North America have also been concentrated on refineries that
consume these crudes.
Asian buyers will take barrels from the Atlantic basin but
have a strong negotiating position over price given the relative
oversupply and the high cost of shipping further undermines what
producers can expect to receive from Asian customers buying
crude from the east coast of Canada.
But sometimes the path of least resistance is the most
expensive. Without Soviet-style powers to dictate the location
of a pipeline, producers have to accept what they can get.
Still, Alberta producers will be paying a hefty tariff to pump
crude up to 2,600 miles (4,200 km) before Asian buyers start
With the Keystone XL pipeline to the United States still in
limbo and little sign the Obama Administration is prepared to
act quickly, Canadian oil producers have little choice but to
opt for Plan B, a $12 billion pipeline to the least attractive
The delay will be painful, however. With no new pipeline
until 2017, they face a few years of poor pricing as rising
output runs up against increasingly saturated inland North
NATIONAL ENERGY POLICY
The whole Canadian pipeline saga is replete with irony. The
Alberta oil producers' assumption that the United States would
always buy as much Canadian oil as could be produced has been
exposed as dangerously naive and short-sighted.
Moreover, Alberta's hostility to any form of federal energy
policy has for years put off the Canadian federal government
from any active efforts to promote oil export routes. Under
Canada's constitution, the provinces are the owners of natural
resources and have jealously guarded their prerogatives.
The last attempt to use federal power to promote a national
energy policy is loathed to this day in Alberta. The 1980s
National Energy Program forced the province to share its oil
income with the federal government to help redistribute the
country's oil wealth. The NEP also sought to improve energy
supply security in eastern Canada and keep domestic oil prices
below export world prices.
Now in the face of opposition from environmental groups in
the United States and Canadian aboriginal people whose lands lie
athwart routes to the Pacific Ocean, the Alberta oil producers
need to go east.
But getting Energy East approved may require a reversion of
sorts to the National Energy Program. Quebec's provincial
government has already raised concerns about the project. But
many observers suspect Quebec's concerns are motivated as much
by a desire for a slice of the revenue pie as by environmental
Hard bargaining likely lies ahead for Alberta even if
Canada's conservative government has taken steps to curtail the
powers of the national pipeline regulator by reducing the scope
of its reviews of pipeline projects.
That said, Energy East, for all of its economic headwinds,
now looks like the most likely pipeline megaproject in North
America to go ahead on time.
TransCanada already owns or controls much of the right of
way on the pipeline making the review process much easier.
Canada's pro-oil policies will also ease the regulatory review
and the eastern provinces are likely to be swayed by the
prospect of cheaper oil and a slice of the revenue pie.
Keystone XL, on the other hand, may well languish for years
of further review, perhaps even until U.S. President Barack
Obama completes his presidential term in early 2017. Proposals
to build pipelines to the Pacific aim to be built towards the
end of the decade but opposition from aboriginal groups is
fierce in places and likely will stall the process.
One thing is for sure. The Energy East proposal will not end
the pipeline sagas. If anything, they are set to intensify.